Russell Gold is an energy reporter for The Wall Street Journal. He studies energy exploration and production from every conceivable angle. Today, you’ll hear his theories on how The Bakken is effecting world markets and economies, the technology that goes into modern oil exploration and much, much more. This is The Hegg Bakken Report!
Hegg Bakken Report: Today on the head Bakken report, we get in touch with energy reporter from one of the top publications in the United States, in the world in fact, the Wall Street Journal and Russell Gold joins us. Russell, thank you for coming on the program today.
Russell Gold: Thanks for having me. I appreciate it.
Hegg Bakken Report: What areas do you cover for the Wall Street Journal? Give us a little snapshot of that.
Russell Gold: Well, I cover energy for the journal. Mostly it stays at oil and gas. I do a lot of – I’ve done a lot of electricity and some other issues, but I went on my first frac job in the summer of 2003 down in the Bakken, so this is really, this has been my life for over a decade now.
Hegg Bakken Report: So you visited the Bakken and what was your impression of what you saw here?
Russell Gold: Well, actually the last time I was up in the Bakken was in October of 2012, so almost a year ago now. I stayed down in Dickinson, but made it up to Williston. Actually spent a night on a frac job out, getting on to towards killdeer. It was a marathon job and it was – it’s a lot of fun actually. It’s one thing to kind of read about it and understand fracing, but to spend a whole night on a job was great.
And the week I was there the Dickinson city manager quit, because he was just too tired, there were too many people on too many things going on. So you know there was obviously a lot going on out there, but I don’t have to tell you guys that.
Hegg Bakken Report: We will get back to the Bakken. Let’s go back to what led you up to your position with the Wall Street Journal. You were nominated for a Pulitzer Prize. Tell us about the reporting that you did that led to that distinction.
Russell Gold: Sure, sure. Actually we are the finalist of Pulitzer Prize. Well, back in April 20, 2010 if I remember correctly, there was a small news item that moved, that there was a fire way out in the Gulf of Mexico on a rig. You know fires are incidents on the Gulf of Mexico happen, but this was really far out and it was very clear from the get go that this one of the big ultra-modern rigs they were talking about, obviously I’m talking about the Deep Water Horizon.
And I sent pretty much the next year reporting on it, talking to engineers, trying to really understand what happened, and we ended up breaking a lot of the news and a lot of exactly what happened out there that day. Really the story that probably put us over the top to be a finalist was the story about the negative pressure test that was performed just hours before the blow out, and we provided the details about how they ran the negative pressure test once. Didn’t quite understand what it was saying. Someone offered up a hypothesis that there was a bubble or assuming a balloon effect, which frankly doesn’t exist, no one really knew.
They ran another negative pressure test and they couldn’t understand what it was telling them either and the picture we painted was that this was an incredibly expensive piece of equipment, just unbelievable high-tech expertise there, but it really all boiled down to about five or six guy standing around, trying to understand what this well was telling them under extraordinary pressure and they misunderstood it, and they missed the sign of an imminent blowout that had already begun and unfortunately several hours later when the gas and oil came up and it was pushing the gas ahead of it, we all know what happened. It was 11 people died and we had one of the worst environmental disasters in the history of the United States.
Hegg Bakken Report: Our finalist for the Pulitzer Prize, you did win the Gerald Loeb Award for distinguished business in financial journalism. First on all, congratulants on all the above. Tell us about your coverage that led to the Gerald Loeb Award for this.
Russell Gold: Gerald Loeb was for the same thing. It was for our Deep Water Horizon coverage. So it really was – we won that year for essentially best business coverage of the year and it was an acknowledgement that this was a very complicated story, with lots of moving pieces and one of the most interesting things to me, by 2010 I’ve been covering the energy industry for seven or eight years, but I had to go back and essentially how wells were built from scratch.
I thought I knew, but I really didn’t and so it was sort of a humbling experience to realize that if I’m going to do this story right, I’ve got to go down almost get an education as a petroleum engineer, how to build to well and what it took and so I did, and fortunately I found my version of deep throat I suppose who was somebody not actually internally involved in the deep water horizon, but someone who had drilled these deep water wells for years and years and have recently retired and he was very, very kind and would take my phone calls and we’d talk through at length, exactly what happened and why would you do this and why would you do that, and what does this mean and what does that mean and I often joke that that was my masters in petroleum engineering in got that year.
Hegg Bakken Report: Do you feel that – when you said that you thought you knew how wells were drilled, do you think it was the technology that advanced and caught you off guard and there is new information in that aspect?
Russell Gold: No, it was just a matter that I was a reporter and I thought I knew the industry I covered and as it turned out, it was a lot more complicated than I realized. And to really understand what went wrong, I needed to get into the weeds. I needed to really get in there and understand what a negative pressure test was and why that was important and what an intermediate casing was and why that was important and what shoes were and all sorts of terms.
I kept going back to the slumbers oil field glossary online. So what does that mean, what is that tool they are taking about. It just kind of goes to show that you are only as good as much as you know and sometimes you better realize when you don’t know something and go back to school on it.
Hegg Bakken Report: You had an article in this week’s Wall Street Journal that revealed your research that showed that the U.S. is about to dethrone Russia as the world’s largest producer of oil and natural gas. What did your research show that lead to that?
Russell Gold: That was sort of interesting. About two or three weeks ago I was up at the Bush Institute, the library for George W. Bush in Dallas. I was moderating a panel and at the dinner that night, the former Commerce Secretary, Don Evans got up and he was introducing Rex Tillerson from Exxon and he mentioned, you know the U.S. is going to be the worlds largest producer of oil and gas this year, and I thought to myself, what is he on about. There is no way that’s the case and I called up a couple of colleagues who know the industry and I said who is the top oil and gas producer in the world. They said Russia and that was an assumption and that’s what I thought too.
But then we sort of went back and started looking at the numbers and said okay, let’s pull some IEA, International Energy Agency numbers and lets figure this out and as it turned out, what had been happening over the last five years is Russia was pretty much flat and the U.S. just kept coming and coming and closing that gap.
So okay, well we know the U.S. was trailing at the end of 2012, but what happened in 2013, and the data wasn’t quite there. We had oil data through July and we were able to make some educated guesses on gas production this year and when we put the numbers together and we were conservative as possible, lo and behold, in July of this year it looks the U.S. passed Russia becomes the world’s leading producer of oil and gas. When you fill coal into that you know it’s no question U.S. is at the top.
What’s really amazing about that is that not like the U.S. is slowing down right now. I mean month over month their increases in oil and gas is inching up, so this trend is going to continue and Russia is certainly not going anywhere fast. So I think for the next couple of years the very least you should see U.S. in the top position.
Hegg Bakken Report: Very obvious the Bakken plays a big role in this development, yes?
Russell Gold: Sure.
Hegg Bakken Report: How is the Bakken impacting or standing in the world and our global energy markets.
Russell Gold: Well you know, I don’t think there’s any question. When you look at a place like the Bakken and you add in the Eagle Ford down in South Texas, there is just a lot of light sweet crude coming into the United States markets, being produced in the United States that didn’t exist before, and really what’s happening is that its slowing down towards all the refineries in the middle part of the country and down the Gulf Coast and those refineries don’t have to go and buy light sweet from Africa any more.
You know Nigeria and Angola used to be these enormous exporters to the United States and they are sort of running on just maybe one or two shipments a month. I mean it’s an incredible shift. So as the entire Americas, Canada, North Dakota, down into what’s going on in Brazil, we are just producing a lot more oil in the Americas right now and we are stopping importing it from other places and those other exporters are now shifting to sell into Asia.
The big picture here is that we’ve created some slack in the market. This was a really tight market, but the United States rise in productions created a lot of slack and that, it’s given us a little breathing room. Yes sure, oil prices are still high, but we are not seeing that volatility or whenever there is a forced majority in Nigeria, whenever there is a Gulf of Mexico hurricane shutting down production, we used to see $10 and $20 price movement, just because the market was so tight, to take any oil off the market and all of a sudden the price would just shoot up. We are not seeing that anymore and you really have to give credit to places like the Bakken where there is so much more oil than there was before.
Hegg Bakken Report: Russell, do you feel that the Bakken and the U.S. Shale boom in general, do you think its effected Russia’s economy?
Russell Gold: Well, actually yes. The short answer is yes, that Russia is starting to look around and scrap around for markets and it’s that economy. I mean that’s a real hydro economy; it’s a hydrocarbon economy. 40% of the State’s budget comes from royalties and taxes and duties, it’s just a huge part of their economy.
So if they are loosing market share that is absolutely going to affect their economy and I talked to some experts over there and they said, look, those guys need to wake up and realize that if they want to stay competitive, they are going to have to do to the Bazhenov, which is a big Shale formation out in Western Siberia, what’s been done in the Bakken. So they are years away from really being able to do that effectively, but that’s probably where we’re headed.
Hegg Bakken Report: You know our officials just last week; they said that Bakken oil output is going to double by 2017. What does something like that do to say the Saudi Arabia economy?
Russell Gold: So where we are right now, about 800,000, 850,000 barrels of oil.
Hegg Bakken Report: Right in there, right.
Russell Gold: Okay, you know Saudi Arabia and many of the other OPEC nations, they need to maintain these production levels, because they’ve got a lot of costs and they need money coming in and this is really their one economy and their one driver of fun. So if they are loosing market, you know that could be a big deal for them.
Now right now, we still have China growing, we have a lot of Asian economies that are picking up in terms of their oil demand. So a lot of that oil is going to be able to go there, to keep the market well supplied. But this is a real – the way I think about it is that for 40 years, we sort of had the flow of oil worked out, right since the 1970s, lost production in the middle east, most of it, much of it was flowing into United States, some of it going here and there, this has all changed, and I think one of the things I think about and talk about is that we don’t really know where this is going.
What we know is that we are going through a generational change right now, and its been driven by hydraulically fracture wells into the tight oils. How does this all end up, how does this all end up playing, we don’t know. But the assumptions, the bottom line is that the assumptions that we’ve all lived with for a long time are no longer the case, so kind of hold on to your hats. It’s going to be a bumpy ride.
Hegg Bakken Report: Our guest today is the energy reporter for the Wall Street Journal, Russell Gold. Russell, what does it take to get a story on the front page of the Wall Street Journal?
Russell Gold: A lot of hard work and a little luck. You know these days it really has to be something that people don’t know, it has to be some major breaking news or something that really is going to change the way people see something.
You know this story about the U.S. passing Russia, it just was something that people didn’t know, people didn’t have sense that the U.S. had become such a large producer, that it was now the world’s top and what I need to do is I need to go out and report it and talk to the right people, write it clearly, write it cleanly and then promote the heck out of it within the journal and hope that there was not a lot of news that day, they will bump it off the front page.
Hegg Bakken Report: As an energy reporter what do you do or what do you read? How do you stay on top of energy developments?
Russell Gold: Well, I kind of read everything and talk to as many people as possible. I read analyst notes, I have a Twitter feed of lots of interesting people that scan all the time, read a lot of reports and then I pick up the phone and talk to as many people as possible.
For me, what bother me is pick up the phone and talking to some sort of public relations person, who maybe only started learning about oil and gas a year ago, because I get nowhere with that, that’s no help to me.
The executives out there, the people who will pick up the phone and talk to me off the record and say, okay here is what we are seeing, here is what we’re feeling, we are good on this, we are not so sure about that, that’s really helpful. That kind if inside insight is what I like and sometimes it turns into stories and sometimes I just file it away for the future. So I’m working the phones and reading as much as I can.
Hegg Bakken Report: One final question for you Russell, are there three books that have been most influential to your professional career that you’ve read?
Russell Gold: Three books, all right. Well, two of them are obvious; Daniel Yergin’s, The Prize; Head on shoulders, the best history of the oil industry and makes the point again and again that if you want to understand the history of the 20th century, you better understand the history of energy, because the two are just absolutely intertwined.
I also love a book by a New Yorker writer named Mark Singer called Funny Money and it is about the collapse of the Penn Square Bank in Oklahoma City in 1982 or ’83 and just really about the whole culture of wildcatters in exuberance and just how it is you get the money and you get the belief to go out and spend millions of dollars and sometimes you make a mistake and sometimes you get rich and it’s just a wonderful read and lots of fun. The third book, again I don’t know, I’m writing a book myself right now. Can I put…
Hegg Bakken Report: Go for it.
Russell Gold: That will be the third book.
Hegg Bakken Report: That will be the third book, what are you writing about?
Russell Gold: Well, actually I’ve got a book coming out next year from Simon & Schuster early next year on the history on fracing and kind of how we got where we are today and I go all the way back to the 1860’s and the very first wells and talk about how you know people use torpedoes back then down at the bottom of the well to create fractures, get more oil seems and it really all begins back then. There is nothing new under the sun and fracing certainly isn’t.
The big difference is when you think about an old nitroglycerin torpedo that was so volatile, that people used to get their hands blow off and compare that to the night I spent up by Killdeer you know inside of Baker Hughes data van watching what they do, it’s a shift change, let’s put it that way. There is a lot of technology, and a lot of smarts going on right now and a lot of precession that we never had before.
I mean if you think about it, 10 years ago talking about a two mile long lateral with 30 or 40 frac stages, each stage isolated from the next to increase the frac, that’s pretty mind-boggling and you can easily forget just how high tech this industry is as a reporter and you do so at your own peril. There is this really fascinating interesting stuff going on out in the oil fields right now and lots of questions.
This is a new ear for the United States and I think we are all asking questions about where is it going to, how is it going to get there, are we really going to double production by what did you say, 2016, 2017, you know are the rocks good enough for that, have we drilled all the sweet spots and the rocks from now on aren’t going to be as good. Are we going to have the money to do it? It takes a lot of money. $50 billion a year needs to be pumped in just to keep this drilling going. Lots of good questions, lots of important questions and it’s a good time to be covering the industry and suspect it’s probably a good time to be working in the industry too.
Hegg Bakken Report: Our guest today, the energy reporter for the Wall Street Journal, Russell Gold. Thanks so much for the time. This is very interesting stuff, and let’s make it a regular visit. As you just stated, things are happening fast, they are happening all the time and we’ll continue the conversation in the very near future, sir.